- Consider an open economy in which the aggregate supply curve slopes upward
in the short run. Firms in this nation do not import raw materials or any other
productive inputs from abroad, but foreign residents purchase many of the nation’s
goods and services. What is the most likely short-run effect on this nation’s
economy if there is a significant downturn in economic activity in other nations
around the world? - Consider a country with an economic structure consistent with the assumptions of
the classical model. Suppose that businesses in this nation suddenly anticipate
higher future profitability from investments they undertake today. Explain whether or
how this could affect the following:
a. The current equilibrium interest rate
b. Current equilibrium real GDP
c. Current equilibrium employment
d. Current equilibrium saving
e. Future equilibrium real GDP
Sample Solution